In the cannabis industry, many relationships don’t last. One of our most important questions cannabis lawyers Get How Do I Terminate My Cannabis Contract? Despite the obvious contract termination provisionsTerminating a cannabis contract can be very difficult. Today, I will examine how cannabis contracts can be terminated.
Terms of termination of the contract
The first place I go when analyzing how to terminate a cannabis contract is termination language in the contract itself. 99% of contracts have a termination provision. For the 1% who don’t, well, parties may have bigger problems than just termination.
Properly made termination provisions will list the reasons on which either party can terminate the contract. Common grounds for termination, in no particular order, are:
- Unaddressed breaches of the contract
- party bankruptcy
- Prolonged Force Majeure Events
- Changes in the law that make a cannabis contract void or illegal
- Appropriate termination rights (eg, a party can terminate for any reason by giving advance notice)
- Mutual agreement between the two parties
Once the party finds out if there are grounds for termination, it will then need to find out how to terminate the contract.
Contract termination notices
In almost all cases, contracts are terminated by give notice to the other side. There are some exceptions, such as when termination is automatic after a predetermined event has occurred. But we’re only interested in ending the optional contract today.
If a party needs to give notice, the contract (or at least 99% of decent contracts) will say how to give notice. Often times, it has to be delivered by mail or even personal delivery and email is not enough.
Parties usually neglect to follow the terms of the contract notice during the term of the license. Most of the time no one really cares. But in termination, especially controversial termination, accuracy is key. A party that has improperly terminated the termination may be considered to be in contravention, so it is always recommended to follow the terms of the Contract Notice to the letter (and nothing else).
Dealing with sticky contracts
Some people are bad at breaking up, including in cannabis contracts. It’s easy to see why a party might not want to quickly agree to terminate the cannabis agreement. It might give them valuable exclusive rights. They might get a much better deal financially. There are millions of reasons why cannabis companies resist contract termination. In practice, there are some really common tactics we see for a party that doesn’t want to quit.
First, the party may challenge the reasons behind the termination – what I call “attacking the facts”. For example, if the termination is based on its breach, a party may claim that it never breached it. or if the termination is dependent on the occurrence of a force majeure event, he will claim that the event is not in fact a force majeure event. In some cases, an attack on the facts is justified if there is legitimate disagreement about what happened. But in many cases, the parties act in bad faith so that they do not have to terminate the contract.
Second, a party may claim that the other party cannot terminate for various reasons. Sometimes they claim that the other party failed to follow the protocol (see above). They may claim that the other party has already breached first and therefore cannot terminate. These arguments aren’t the strongest and often just lead to the pack kicking on the road.
Third, they may flex their muscles and create every threat under the sun. The prospect of costly litigation may intimidate the party ending the lawsuit and put it in their place. But even when such threats are justified, they are hardly a sign of a good future relationship between the two parties.
Finally, and what I think might be the most effective: the unfinished party might come to the table and try to negotiate. A pragmatic cannabis company may be willing to put their differences aside and try to save the relationship wherever possible. And even if the relationship cannot be salvaged, trying to negotiate in good faith may mean that the parties can come to some sort of arrangement that at least makes everyone happy.
Ending a cannabis contract is difficult
The point of this post is that terminating a cannabis contract is not easy. Even for parties with rights to terminate a dissolution, a well-capitalized party to a contract can always make life a challenge. It is important to anticipate these things at the beginning of the relationship when negotiating termination rights. Otherwise, things can get tricky down the road.